Emerging-market stocks dropped to the lowest level in a year as China’s CSI 300 (SHSZ300) Index entered a bear market after the central bank signaled it will keep efforts to curb credit growth. Bond yields surged and currencies weakened as Turkey’s lira headed for a record low.
The MSCI Emerging Markets Index declined 2 percent to 882.70 at 1:25 p.m. in New York, extending a slump from its Jan. 3 high to 18 percent. The CSI 300 slid 6.3 percent, sinking 22 percent from this year’s peak, while the Shanghai Composite Index capped the biggest retreat since August 2009.
Turkey’s lira weakened a sixth day and Russia’s 2030 Eurobond yield jumped to the highest level in 18 months. The premium investors demand to own emerging-market debt over U.S. Treasuries climbed to an 11-month high, according to JPMorgan Chase & Co.
Chinese stocks led losses in developing nations as the People’s Bank of China said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion and Goldman Sachs Group Inc. said a cash squeeze is hurting growth. China’s worst cash squeeze in at least a decade may weigh on smaller banks’ financial strength as their reliance on interbank funding leads to an erosion of loan margins, according to Moody’s Investors Service.
“There’s a lot of information that came out about China and whether the financial structure is as sound as we thought it was,” Walter ‘Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Ala., said by phone. “We’ve seen a continued weakness in commodities as a ripple effect. The summary of all the information pressures emerging markets.”
All 10 groups in the MSCI Emerging Markets Index fell today by at least 1.4 percent, led by commodity companies as the S&P GSCI index of raw materials sank to a two-month low. The measure of developing-nation stocks is trading at 9.2 times estimated earnings, a one-year low according to data compiled by Bloomberg. Shares in the MSCI World Index of developed markets are valued at 12.8 times projected profits.
The iShares MSCI Emerging Markets Index exchange-traded fund slid 2.2 percent to $36.60. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 11 percent to 37.40, set for a 13-month high.
Brazil’s Ibovespa tumbled 2.5 percent, extending this year’s decline to 24 percent, the most among major emerging markets. Iron-ore producer Vale SA contributed the most to the benchmark stock gauge’s decline.
The Micex Index (INDEXCF) slid 0.7 percent as OAO Sberbank, Russia’s biggest lender, fell to the lowest level since November 2012. The yield on the nation’s Eurobonds due March 2030 rose 32 basis points to 4.64 percent, the highest since December 2011.